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Sectoral Tax Leads to Dangerous Disruption of the Economic System

English Pages, 1. 9. 2022

The citizens of the Czech Republic have found themselves, somewhat surprisingly, in a difficult and very frustrating economic situation. The country has, for many years, "invested" in inflation and the result is that it currently exceeds horrifying 17 %. No one among the living has ever personally experienced such a high inflation rate.

As always, inflation is a great "redistributor". It does not affect everyone in the same way. It is harming some of us more, some less. Some quite tragically. The degree of individual frustration is, therefore, very uneven, which complicates the debates about the disinflation policy measures. The politicians are not brave enough.

Fighting inflation requires a radical restructuring of the state budget and the elimination of its deficit, but the governments usually prefer searching for additional funds to be able to "compensate" for the effects of inflation.

That is exactly what the Czech government is doing just now. In a situation when there have been historically highest budget deficits already for several years, the government can “compensate” only by means of further indebtedness. The politicians are, due to it, searching for "funds" which, contrary to the infamous statement by the former Czech Prime Minister Špidla, "do not exist".

The government has to take them away from its subjects, from individuals and/or firms. As someone who in the early 1990s tried to establish a market system and its accompanying rules (as opposed to communism which was a system of arbitrariness and non-existence of rules), I must protest. As the minister of finance who, immediately after the collapse of communism, prepared our first state budget (for the year 1990) as a surplus budget – so that inflation would not follow the administratively introduced price increases which were the result of the radical price liberalization – I must protest resolutely against plans to implement a sectoral tax (or a war tax or a windfall tax or however it will be called). It is a violation of rules. It is an attack on the system of constant and preannounced rules and economic parameters.

In the current era of neosocialism, our economic environment is being attacked from many angles and directions. The very popular tax exemptions are evidently counterproductive. Subsidies, especially the European ones, are violating the principle of a hard budget constraint. Measures of that kind are always a triumph of politics over the economy. This was the main characteristics of the economic system in the Communist era. To eliminate such an arbitrary system was the most important goal of our economic transformation project more than thirty years ago.

Its basic ideas and its overall "spirit" have already more or less evaporated. The new generations do not understand them and are not aware of the irrationality of the old system. They find it all too easy to play with the possibility of changing the economic parameters as it suits them now.

Economists should protest loudly. There are, regretfully, no economists in the current Czech government, so it must be done by the “non-government” ones. They too should feel it their task and their responsibility.

I therefore say NO to a sectoral tax. NO to deliberate distortions of economic parameters. NO to mass redistribution in favour of those who always know how to get what they want. Let’s stop the government to continue feeding inflation.

Václav Klaus, English version of the answer to a survey in the Czech monthly journal Bankovnictví, September 2022, published also on the website Forum for Democracy.